Nov. 15 (Bloomberg) -- Kimberly-Clark Corp., the maker of Kleenex tissues and Huggies diapers, plans to spin off its health-care business, leaving management to focus on its consumer and professional brands.

The tax-free deal would create a stand-alone, publicly traded company with about $1.6 billion in annual sales, Dallas- based Kimberly-Clark said in a statement yesterday.

The unit that would be separated makes products such as sterile wraps, surgical face masks and catheters. About 70 percent of its sales last year were in North America, with most of the rest in Europe and Asia. In the third quarter, revenue rose after the division posted declines in the previous four quarters.

“The business has been very volatile for them for years, and we had been questioning if they know how to run the business well,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co., said in an e-mail. “We’re encouraged that they are spinning it off; however, we would have liked them to do it when their valuation was lower, not at the elevated levels it is at today.”

Dibadj, based in New York, has a market perform rating on Kimberly-Clark stock, the equivalent of hold. The company’s shares are valued at 18 times projected 2014 earnings, according to data compiled by Bloomberg.

The stock climbed 2.7 percent to $112.70 at 7:48 a.m. in New York. The shares had gained 30 percent this year through yesterday, compared with a 26 percent increase for the Standard & Poor’s 500 Index.

Rivals’ Expansion

Kimberly-Clark’s intent to separate its health-care unit contrasts with rivals, including Clorox Co. and Newell Rubbermaid Inc., that are seeking to deepen their operations in the market. Newell sells telemedicine systems that let doctors consult with patients hundreds of miles away while Clorox has made acquisitions of infection-control products it sells to hospitals and other institutions.

Robert Abernathy, group president for Europe, global nonwovens and continuous improvement and sustainability, will be chief executive officer of the new health-care company if the spinoff is completed, Kimberly-Clark said. Abernathy joined in 1982 and has held senior management positions, including having overall responsibility for the health-care business from 1997 to 2004.

Unpredictable Outlook

The health-care division posted a 4 percent increase in sales in the quarter ended Sept. 30 on a currency-neutral basis, lower than the companywide 5 percent sales gain on that basis. Last year, the unit accounted for 7.7 percent of the company’s $21.1 billion in sales.

The outlook for the division is more unpredictable, CEO Thomas Falk said on Kimberly-Clark’s Oct. 22 earnings call.

“We’re all trying to figure out, in North America in particular, what’s going to happen from a health-care spend overall, what’s going to happen with procedures,” Falk said. “There’s probably a little bit more variability around our outlook for that business going forward.

Kimberly-Clark’s management will continue to study the potential spinoff and make a final recommendation to its directors within the next several months. The transaction would likely be completed by the end of the third quarter next year if approved by the board, the company said. It hired Morgan Stanley to advise it during the process.

A year ago, Kimberly-Clark’s European unit announced a restructuring that included exiting most of its diaper business there, along with some lower-margin businesses such as consumer tissues, and paring its European manufacturing and administration operations.

(Kimberly-Clark has scheduled a conference call to discuss its plan for the health-care business at 10 a.m. Eastern time today.)

--Editors: Kevin Orland, Cecile Daurat

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net